You decide to invest $100,000 in cryptocurrencies and you use that amount to buy bitcoin. Your bitcoin appreciate by 30% in one month, at which point you liquidate half your position for cash, which you do not reinvest. Bitcoin appreciates by another 25% during the second month and you sell an additional 40% of your holdings. The cryptocurrency then falls by 60% in the third month, at which point you liquidate your entire position for cash.

a. What is your dollar weighted monthly return?

b. What is the effective annualized return of your answer to part a. above?

c. What would have been your monthly return had you not liquidated any portion of your position until the end of the third month?

You are considering an investment in a mutual fund with a 6% load and expense ratio of 0.25%. You can invest instead in a bank CD paying 1% interest.

a. If you plan to invest for 5 years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What annual rate of return must the fund portfolio earn if you plan to invest for 7 years to be better off in the fund than in the CD? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of 1.00% per year. What annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Complete the balance sheet and sales information using the following financial data:

Total assets turnover: 1.4×
Days sales outstanding: 36.5 days^a
Inventory turnover ratio: 5×
Fixed assets turnover: 3.0×
Current ratio: 2.5×
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 20%
^aCalculation is based on a 365-day year.

Do not round intermediate calculations. Round your answers to the nearest dollar.

DA Inc. is currently an all-equity firm, with a value of $500. It has 25 shares outstanding. The EBIT is 153.85 per year forever. The tax rate is 35%. The payout is 100%. It is planning to do a capital restructuring by issuing $200 of perpetual debt, costing 10% and use the proceeds to repurchase stock.
- What is the cost of unlevered equity?
- How many shares will it repurchase? At what price?
- What is the cost of levered equity? Confirm your answer by both computing the PV of all cash flows to shareholders at levered equity cost and using MMII.

Conduct a PEST analysis to evaluate the external environment of UnitedHealth Group.

1. NPV According to the text, the NPV rule states that "An investment should be accepted if the NPV is positive and rejected if it is negative." What does an NPV of zero mean? If you were a decision-maker faced with a project with a zero NPV (or very close to zero) what would you do? Why?

2. FORECASTING ERROR (RISK) What is a "forecasting error"? Why is it important to the analysis of capital expenditure projects?

Your firm has been hired to develop new software for the​ university's class registration system. Under the​ contract, you will receive $492,000 as an upfront payment. You expect the development costs to be $439,000 per year for the next 33years. Once the new system is in​ place, you will receive a final payment of $865,000 from the university 4 years from now.

a. What are the IRRs of this​ opportunity?  ​(Hint​: Build an Excel model which tests the NPV at​ 1% intervals from​ 1% to​ 40%. Then zero in on the rates at which the NPV changes​ signs.)

b. If your cost of capital is 10 ,is the opportunity​ attractive Suppose you are able to renegotiate the terms of the contract so that your final payment in year 4will be $1.2million.  

c. What is the IRR of the opportunity​ now?

d. Is it attractive at the new​ terms?

Assume that security returns are generated by the single-index model,

R_i = α_i + β_iR_M + e_i
where R_i is the excess return for security i and R_M is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data:

a. If σ_M = 22%, calculate the variance of returns of securities A, B, and C.

b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C?

Featherbed Surf & Leisure Holidays Ltd. is a resort company based on Vancouver Island. Its operations include boating, surfing, diving, and other leisure activities; a backpackers’ hostel; a family hotel; and a five-star resort. Justin and Sarah Morris own the majority of the shares in the Morris Group, which controls Featherbed. Justin is the chair of the board of directors of both Featherbed and the Morris Group, and Sarah is a director of both companies as well as the CFO of Featherbed.

In February 2020, Justin Morris approached your audit firm, KFP Partners, to carry out the Featherbed audit for the year ended June 30, 2020. Featherbed has not been audited before but this year the audit has been requested by the company’s bank and a new private equity investor group that has just acquired a 20-percent share of Featherbed.

Featherbed employs 30 full-time staff. These workers are employed in administration, accounting, catering, cleaning, and hotel/restaurant duties. During peak periods, Featherbed also uses part-time and casual workers. These workers tend to be travellers visiting the West Coast who are looking for short- term employment to help pay their traveling expenses.

Justin and Sarah have a fairly laid-back management style. They trust their workers to work hard for the company and they reward them well. The accounting staff, in particular, are very loyal to the company. Justin tells you that some accounting staff enjoy their jobs so much they have never taken any holidays, and hardly any workers ever take sick leave.

There are three people currently employed as the accountants, the most senior of whom is Peter Pinn. Peter heads the accounting department and reports directly to Sarah. He is in his fifties and plans to retire in two or three years. Peter prides himself on his ability to delegate most of his work to his two accounting staff, Kristen and Julie. He claims he has to do this because he is very busy developing a policy and procedures manual for the accounting department. This delegated work includes opening mail, processing payments and receipts, banking funds received, performing reconciliations, posting journals, and performing the payroll function. Julie is a recently graduated Chartered Professional Accountant. Kristen works part-time—coming into the office on Mondays, Wednesdays, and Fridays. Kristen is responsible for posting all journal entries into the accounting system and the payroll function. Julie does the balance of the work, but they often help each other out in busy periods.

Required

Using the factors in the above scenario, assess audit risk.

Your company is about to undertake a major investment project. The project will require an initial outlay of $100 million for fixed assets plus another $50 million for working capital. Tax authorities will allow you to depreciate the fixed assets on a straight-line basis over four years to a salvage value of zero. In fact, however, you expect that you can sell the fixed assets for $25 million at the end of Year 4. You also expect that you can recover your working capital at its book value at that time. You expect that the project will generate $60 million in revenue and $30 million in cash operating expenses (excluding depreciation) during each of the next four years. The corporate tax rate is 40%.

1. a) What are the cash flows for each year of the project’s life that you would use in conducting an NPV analysis of the project? (Be sure to show the cash flow components, rather than just showing a single number for each year.)

2. b) If the cost of capital is 10%, what is the project’s NPV?

3. c) What is the minimum price at which you could sell the fixed assets at the end of Year 4 in order for the project to be just acceptable?

Hampton Industries had $35,000 in cash at year-end 2018 and $10,000 in cash at year-end 2019. The firm invested in property, plant, and equipment totaling $140,000 — the majority having a useful life greater than 20 years and falling under the alternative depreciation system. Cash flow from financing activities totaled +$110,000. Round your answers to the nearest dollar, if necessary.

1. What was the cash flow from operating activities? Cash outflow, if any, should be indicated by a minus sign.

   $   

2. If accruals increased by $10,000, receivables and inventories increased by $140,000, and depreciation and amortization totaled $33,000, what was the firm's net income?

The most recent financial statements for Crosby, Inc., follow. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales. Assume the firm is operating at full capacity and the debt-equity ratio is held constant.

Complete the pro forma income statements below. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Refer to the following financial statements of Bongo Comics Group.

Bongo Comic Group Income Statements (In 000’s, except EPS)

Bongo Comics Group Balance Sheets (In 000’s) as of Dec. 31, Years Ended

a. How long, on average, was Bongo Comics Group taking to collect on its receivable accounts in 2018? (Assume all of the company’s sales were on credit.)

b. Was Bongo Comics Group more or less profitable in 2018 than in 2016? Justify your answer by examining the net profit margin and return on assets ratios.

c. Was Bongo Comics Group more or less liquid at the end of 2018 than it was at the end of 2016? Justify your answer using the curre

Explain the net present value formula and also explain what the net present value represents.

Dickinson Company has $11,800,000 million in assets. Currently half of these assets are financed with long-term debt at 9.0 percent and half with common stock having a par value of $8. Ms. Smith, Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 9.0 percent. The tax rate is 35 percent. Tax loss carryover provisions apply, so negative tax amounts are permissible.

Under Plan D, a $2,950,000 million long-term bond would be sold at an interest rate of 11.0 percent and 368,750 shares of stock would be purchased in the market at $8 per share and retired.

Under Plan E, 368,750 shares of stock would be sold at $8 per share and the $2,950,000 in proceeds would be used to reduce long-term debt.

a. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.)

b-1. Compute the earnings per share if return on assets fell to 4.50 percent. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

b-2. Which plan would be most favorable if return on assets fell to 4.50 percent? Consider the current plan and the two new plans.
  

• Plan E

• Current Plan

• Plan D

b-3. Compute the earnings per share if return on assets increased to 14.0 percent. (Round your answers to 2 decimal places.)

b-4. Which plan would be most favorable if return on assets increased to 14.0 percent? Consider the current plan and the two new plans. Current Plan Plan D Plan

E c-1. If the market price for common stock rose to $10 before the restructuring, compute the earnings per share. Continue to assume that $2,950,000 million in debt will be used to retire stock in Plan D and $2,950,000 million of new equity will be sold to retire debt in Plan E. Also assume that return on assets is 9.0 percent. (Round your answers to 2 decimal places.)

c-2. If the market price for common stock rose to $10 before the restructuring, which plan would then be most attractive? Plan D Current Plan Plan E